Tax relief and social investment – the golden egg?

“Social enterprises play an important role in growing the economy, reforming public services and promoting social justice. The Government will introduce a new tax relief to encourage private investment in social enterprise. The tax relief will complement the Government’s other recent measures to help social enterprises access the capital they need, such as the launch in 2012 of Big Society Capital. The Government will consult formally on the details of the relief by summer 2013 and the relief will be introduced in Finance Bill 2014.”

Last week’s budget speech was regarded as a welcome boost to the sector, for many have been lobbying for tax breaks for a long time. As the only UK body to independently certify social enterprise, the Social Enterprise Mark Company generally welcomes anything that helps companies increase their investment potential in this exciting and innovative sector.

However, we would also caution that social investment should not come at the expense of a degradation of social mission because this is a central plank of any genuine social enterprise. The social mission at the heart of these businesses gives import to the asset lock which limits the amount of profits and assets that shareholders (if there are any) can take out of a business (see my January blog post on definitions). The asset lock is there to protect the very values and mission which make social enterprise different from other businesses.
The question, therefore, is not so much about how we attract individuals and organisations to invest in social enterprise (by this I mean equity), but more about how we attract the right investment into social enterprise that builds and enhances social mission. This is what will boost the real needs of the sector and most importantly its customers. Currently the debate is more focused on what the investor wants than the demand from social enterprises, hence the pressures to dilute the asset lock and open social investment up to the wider ethical business world, as outlined in Civil Society.

Social enterprises need a whole range of products that take into account the long and difficult game that they are applying their business model to. Very often, when it comes to investment they have had to come up with a raft of different solutions and be incredibly creative in order to meet their social mission. As we know those options are becoming increasingly limited, further exacerbated by the risk aversion of the banks and the still limited breaks being given to SMEs, which by far form the largest group of businesses certified with the Social Enterprise Mark (Mark holders).

Hence, the ideal scenario for Social Investment Tax Relief would be that the principle of social mission is at its core, rather than fixating on a prescribed investor model, which has yet to be proved. Tax relief is a good incentive and the government should let the genuine social enterprise market work out how to best apply it to increase their own social value.

So let’s stop talking about getting investment ready and instead think about getting investors in all their shapes and forms ready for the challenge ahead – offering opportunities for social enterprises to join up the products and fill the gaps.